LASER TALK: Regulations to Cap GHGs in the Oil and Gas Sector (2025)

Regulations to Cap GHGs in the Oil and Gas Sector

In a nutshell
Overall, Citizens’ Climate Lobby Canada recommends that Canada’s Regulatory Framework for an Oil and Gas Sector Greenhouse Gas Emissions Cap be aligned with the UN’s Integrity Matters and High-Level Expert Group on Net-Zero Commitments. The Framework must have rigour and no loopholes. We must have zero tolerance for net-zero greenwashing.

Full Explanation
In 2021 the federal government committed to reduce GHG emissions from the oil and gas sector from then current levels at a pace and scale necessary to achieve net-zero by 2050.

On Nov 9, 2024, the federal government finally published draft Oil and Gas Sector Greenhouse Gas Emissions Cap Regulations (proposed Regulations)

The proposed Regulations would establish a new national cap-and-trade system that would apply to upstream oil and gas activities including onshore and offshore oil and gas production; oil sands production and upgrading; natural gas production and processing; and the production of LNG.

The proposed Regulations include the following features

• Beginning in 2029, emissions allowances (for 2030) would be distributed free of charge to covered operators, with the total number of allowances constituting a GHG emissions cap. At the end of each three-year compliance period (the first is from 2030-2032), each facility will need to remit to the government one allowance for each tonne of carbon pollution it has emitted. Over time, the government will give out fewer allowances, corresponding to a declining emissions cap.
• If an operator does not have enough allowances to cover their emissions, they will be able to buy allowances from other operators, or contribute to a decarbonization program or use GHG offset credits to cover a portion of their emissions (up to 10% for the decarbonization program and up to 20% for offsets, for a maximum of 20% for both options together).
• The proposed Regulations would use data reported by operators for 2026 to set the first oil and gas GHG emissions cap. The oil and gas GHG emissions cap for the first compliance period, 2030-2032, would be set at 27% below emissions reported for 2026, which is estimated to be equivalent to 35% below 2019 emissions.
• The system would be phased in for the first four years (2026-2029). During that period, operators would be required to register and report their annual emissions and production.
• Free allowances would not be able to be used for compliance under other carbon pricing systems, such as the federal Output-Based Pricing System. However, under certain circumstances offsets could be used to satisfy obligations under both the GHG emissions cap and other carbon pricing systems.
• While all operators would be required to register and report, only large operators (producing above an annual threshold of 365,000 barrels of oil equivalent) would have to remit allowances to cover their emissions. Large operators account for approximately 99% of the upstream sector’s emissions

Citizens’ Climate Lobby Canada welcomes this GHG emissions cap as important and needed to ensure fairness across economic sectors and across communities in Canada, and to achieve our international commitments. But:

• Having the system phased in through 2029, and the first compliance period 2030 -2032, is too late. It pushes us past our Paris commitment date of 2030 and much needs to be done by the industry before then.
• The ability to contribute to a decarbonization program, and to use offsets, would allow the O&G sector to exceed by a significant amount (up to 20%) their GHG emissions cap obligation and should not be included in the regulations.
• The proposal to permit offsets is particularly fraught, as many offsets have been found to be worthless, overstated, temporary, or double-counted.
• Overall, Citizens’ Climate Lobby Canada recommends that Canada’s Regulatory Framework for an Oil and Gas Sector Greenhouse Gas Emissions Cap be aligned with the UN’s Integrity Matters and High-Level Expert Group on Net-Zero Commitments. The Framework must have rigour and no loopholes. We must have zero tolerance for net-zero greenwashing.

For further information on the proposed Regulations, see the Backgrounder issued on Nov 4, 2024 by Environment and Climate Change Canada.

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